The Guardian has published some good old fashioned investigative reporting on Tescos today. As it says:
Tesco has created an elaborate corporate structure involving offshore tax havens which enables it to avoid paying what could be up to £1bn of tax on profits from the sale of its UK properties.
The complex new structures uncovered by a six-month Guardian investigation include a string of Cayman Island companies, each named after a different colour, from aqua to violet. These are being used by the supermarket giant as it proceeds with its announced programme to sell and lease back £6bn worth of its UK stores.
The stores are being sold to external investors providing Tesco with a big one-off gain which, ordinarily, would be liable to tax, while allowing it to remain in the stores and pay rent to the new owners.
Ian Griffiths and Felicity Lawrence who wrote this are two first rate journalists. I know how long they worked on this story. But what really gets me about this are the broader issues. In its CSR statements Tescos says:
One of our most important values is to treat people how we would like to be treated. We try to achieve this by being a good employer and by playing our part in local communities. People tell us that they want use to use our size and success to be a force for good.
Paying tax in the place where you make your profit is the best way any business can support its local community. Tescos is not doing that. It is seeking to avoid its corporate responsibility to the UK in this respect. That is the only justification for its use of a Cayman structure.
Tescos cannot argue, as it does in the Guardian, that it has:
a duty to organise its affairs in a tax-efficient manner.
That is not true. Section 172 of the Companies Act 2006 says:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the
company for the benefit t of its members as a whole, and in doing so have regard (amongst other matters) to
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
Nothing in there says a company has a duty to be ‘tax efficient’ (which is simply a euphemism for tax avoiding). Indeed, since it is abundantly clear that this decision is:
a) Not taken in good faith, or Tescos would not have worked so hard and for so long to stop the Guardian publishing it story (as I believe they did);
b) not in the best interests of their employees, who would clearly benefit from the tax being paid in the UK;
c) Is not beneficial to having a good business reputation and is inconsistent with a high standard of conduct, especially in light of current opinion on the use of tax havens;
d) increases long term risk for shareholders who no longer have control of the prime assets the company uses, which are instead now controlled through opaque structures;
and as such it is easy to argue that the deal fails the tests in the Companies Act, let alone any CSR measure.
So let’s be clear what is really going on here: Tescos is using abusive structures to increase profits at the expense of the UK taxpayer who form the vast majority of their customers to enhance the well being of the senior management first of all and the wealthiest in society who own their shares second (pensioners included by the way: almost all with private pensions are by definition in that wealthiest grouping) at cost to the rest of society at large.
Nothing Tesco can do can redeem that and make them seem like a responsible company: they’re not. This is corporate fiddling. It cannot be described any other way.